Morgan Stanley has been extremely volatile over the past two years. Unfortunately, it’s impossible to predict where this stock is likely to go next. However, we can take a quick look at the situation and do our best to form an opinion.

The following news has the potential to send shockwaves throughout the industry, which would affect Morgan Stanley. Senators Brown and Vitter are interested in a bill where banks holding more capital wouldn’t require a bailout. The basics of this bill are that all United States banks would hold 10 percent capital against assets, an extra 5 percent for banks with more than $500 billion in assets, and a final rule that feds can increase the level based on risk. The concern is that these rules would potentially limit the banks abilities to lend to businesses. That, in turn, would reduce job creation. With fewer jobs, unemployment rates increase, and we fall back into recession. Would it turn out that way? Nobody knows for sure, but that’s the concern.

Morgan Stanley also recently received a downgrade to Neutral from Credit Suisse. This was based primarily on a run-up in the stock price and limited upside potential. Credit Suisse stated: “We advocate a neutral stance today absent a further pickup in the operating environment, meaningful operating leverage and/or faster excess capital returns.”

Morgan Stanley has been reducing risk, which should be look at as a positive. However, in today’s economic environment, not much makes sense. It seems as though high risk is once again the place to be. We’ll cover this more in the Trends section. For now, let’s take a look at the chart below, which compares fundamentals for Morgan Stanley, The Goldman Sachs Group (NYSE:GS), and JPMorgan Chase & Co. (NYSE:JPM). Morgan Stanley has a market cap of $41.81 billion, Goldman Sachs has a market cap of $68.48 billion, and JPMorgan has a market cap of $182.19 billion.

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Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Morgan Stanley is considerably weaker than the industry average of 2.80.

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T = Technicals on the Stock Chart Are Subpar

Morgan Stanley is unique in that it is one of the few stocks throughout the broader market that has violently changed course many times over the past several years. Most stocks have performed very well during this bull market era. Others have failed due to dying industries. Morgan Stanley has been somewhere in the middle, managing to please and frustrate investors every few months or so. Some people might point to the 0.90 percent yield as a selling point, but it would be easy to find a better yield. For example, JPMorgan has outperformed Morgan Stanley over a three-year time frame, and it currently yields 3.20 percent. Of course, JPMorgan has its own issues at the moment, but this is just one example.

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At $21.33, Morgan Stanley is trading below its 50-day SMA, but above its 100-day SMA and 200-day SMA.

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E = Earnings Have Been Inconsistent

Once again, there is inconsistency. This isn’t just in regards to earnings, but revenue as well.

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When we look at the last quarter on a year-over-year basis, we see significant improvements in revenue and earnings.

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Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

There have been several downgrades throughout the industry as of late due to run-ups in stock prices over the past several months. A lot of attention is now being paid to risky banks because they have more room for improvement and upside potential. We’re entering a world where higher risk is recommended. Welcome to 2007.

Conclusion

With inconsistencies in revenue and earnings, increased regulations, and consistent downgrades throughout the industry, Morgan Stanley isn’t the best place to be at the moment. It’s not the worst place to be, either, but finding a better option wouldn’t be difficult. Morgan Stanley is a WAIT AND SEE. Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.